The Merchant Liability Shift is Coming (What You Need to Know)

Effective 14th April 2018, Visa goes live with its Visa Claims Resolution (VCR) initiative designed to help reduce dispute timelines and simplify the chargeback process.

Today we’ll explore what many merchants will face at some point in their dispute resolution cycle. It can be a difficult transition, likely confusing, and disruptive to business. There’s an old saying, “if it isn’t broken, don’t fix it”, and the key to understanding why a legacy system has to change is first to determine whether or not it’s broken.

Chargebacks are part of a decades-old process that hasn’t evolved much since its origin in the ‘70s. While suitable for its time, Visa believes the existing system is not flexible enough to handle the volume and complexity of today’s payments industry.

To keep pace with the digital age, Visa has applied automated tools in an effort to improve dispute resolution speed and filter invalid disputes out of the process. While the new system is designed for overall simplification, it differs from the existing process in key areas and is not without consequence.

Liability-Based Model

The process will be restructured from the current litigation-based model to a liability-assignment model. A key component of VCR is a model that automatically assigns liability in as many cases as possible. All cases will be routed through one of two workflow tracks: Allocation or Collaboration. Visa estimates up to two-thirds of all disputes will go to the Allocation bucket, which immediately places liability on the merchant. Merchants will only be allowed to challenge fraud and authorisation chargebacks if they have clear and definitive proof or “compelling evidence.”

Shortened Dispute Resolution Cycle

To speed up processing and decrease the need for multiple cycles of back and forth between merchant, acquirer, and issuer to exchange information, merchants will have only 30 days to respond – a significant reduction to the time allowed today. Visa anticipates this will result in faster chargeback resolution for merchants. On the flip side, merchants will have to work under excessive pressure to prepare and respond to disputes in a much shorter timeline. And expect Visa to reduce this further to 20 days by 2019!

Compelling Evidence Changes

Certain Visa reason codes require specific pieces of evidence to be provided in order to resolve a dispute. This is “compelling evidence”. You can find more details about compelling evidence from Visa’s website. Although Visa will use automated “edit checks” to identify and block some disputes by reviewing transaction data, merchants should be proactive in collecting and maintaining as much customer history and order data as possible to be prepared to act quickly with dispute responses.

Simplified Reason Codes

In addition to time frame and workflow changes, Visa is consolidating the current 22 chargeback reason codes into four categories: Fraud, Authorisation, Processing Errors, and Consumer Disputes. These new categories were created to reduce the complexity of the current dispute process. With this in mind, the retirement of chargeback reason code “Transaction Not Recognised” also means there could potentially be an increase in friendly fraud.

Finally, the new VCR process will impact all parties involved in payments, and it’s important for merchants to monitor disputes carefully after VCR implementation. If you haven’t already done so, you should consider following these tips before the “liability shift” and be prepared for the major changes that VCR will bring:

Review and organise evidence needed to respond to disputes by the deadline

Be proactive with chargeback and fraud mitigation

Update billing descriptors so that cardholders can easily recognise the charge

Review and modify customer service practices to improve customer experience

Issue refunds promptly

You can contact us to learn more about VCR and how we anticipate this new process to place new demands on how you respond to and manage chargebacks. Our goal is that you fully understand how VCR shifts your chargeback process.